Pennsylvania man faced up to six years in prison for concealing US$13M of NFT sales
In April 2025, Waylon Wilcox, 45, from Pennsylvania pleaded guilty in the U.S. federal court to two counts of falsified tax returns, concealing millions of dollars in income from non-fungible token (NFT) sales. Court documents reveal that Wilcox underreported his 2021 income by about US$8.5 million, thus evading approximately US$2.1 million in taxes. For the 2022 tax year, Wilcox underreported his income by about US$4.6 million, resulting in roughly $1.1 million in less taxes payable.
The bulk of Wilcox's unreported earnings came from his trading in CryptoPunk NFTs, each NFT called a "Punk". Specifically, Wilcox sold 62 Punks in 2021 and 35 Punks in 2022. In his tax returns for both years, he disclaimed any dealing in digital assets or virtual currencies by answering "no" to the relevant questions. The Internal Revenue Service (IRS) later investigated his returns and escalated the case to the Criminal Investigation (CI), an agency within the IRS. Wilcox eventually admitted to lying on his tax returns.
Under the American tax regime, taxpayers must report sales proceeds and any gains or losses from the sale of NFTs. Penalties for the offences are up to six years of imprisonment, a term of supervised release following imprisonment, and a fine.
Understanding NFTs and their value
CryptoPunk is a type of NFT. Each NFT is a unique digital asset, like a certificate of ownership, that is recorded and verifiable on a blockchain and can be bought and sold. The transaction can be made in cash, but cryptocurrency remains the most common form of payment.
Each "Punk", an NFT in the realm of CryptoPunk, is a digital artwork created from thousands of art characters. Two Punks might look identical, but they are not interchangeable because each is recorded differently on the blockchain, making them unique from each other.
CryptoPunks were sought-after digital assets during the craze of NFT in 2021 and 2022. At that time, they were sold for almost US$480,000 each. By mid-2025, they have lost roughly 80% of their value and are trading at about US$99,300 each. Early 2025, one collector lost nearly US$10 million when trying to unload his CryptoPunk inventory.
Canadian taxation of NFTs and the consequences of tax evasion
Taxpayers in Canada are required to report income from and pay taxes on the sale of NFTs, or digital assets in general, as provided under the Income Tax Act (ITA).
The Income Tax Act (ITA) distinguishes between various sources of income: income from an office or employment, business income, income from property (or investment income), and capital gains. Different income tax rules apply to different sources of income.
Business income and investment income, for instance, are fully taxable in Canada, whereas only half of the capital gain is included in taxable income. The proceeds from the sale of NFTs, as well as other forms of digital assets, must be reported and appropriately included in the taxpayer's income.
Failing to comply, a taxpayer is liable to a jail term of up to five years, as well as a fine of up to 200% the total amount of taxes evaded. Furthermore, where the tax evasion scheme is sophisticated (as in an organized crime), has international elements, or involves money laundering or terrorism financing, the taxpayer may be charged with fraud under the Criminal Code. In that case, the sentence is much more severe, potentially up to 14 years in jail.
Pro Tax Tip – Taxpayers must report income from NFT sales
Taxpayers must report income from the sales of NFTs and other digital assets. The consequence for tax evasion is serious: possible jail term on top of a hefty fine. Therefore, it is important to keep track of all your NFT transactions and other transactions in digital assets and report them accordingly. If you have not, consult with an experienced Canadian tax lawyer for advice on how to handle your situation.
FAQ
How can tax authorities detect tax evasion in digital assets?
Tax authorities, such as the Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS), collaborate extensively, along with other international tax authorities, to exchange tax enforcement information.
Tax authorities nowadays also make use of artificial intelligence (AI) to analyze data, leveraging their huge database, in order to spot trends and irregularities. Moreover, with respect to digital assets, many are recorded on publicly available, decentralized blockchains, allowing the authorities to verify when necessary.
Needless to say, taxpayers are always advised to truthfully report their income and consult with experienced Canadian taxpayers if in doubt.
What should I do if I mistakenly underreported my income?
Underreporting of income does not automatically mean a criminal charge. Where there was an error or omission in past returns, taxpayers can avail themselves of the voluntary disclosure program (VDP) offered by the CRA.
There are conditions for a taxpayer to be eligible under the VDP. The taxpayer should consult with experienced Canadian tax lawyers to find out if he or she is eligible and have the tax lawyers prepare the VDP application if available.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
